EDITORIAL: Cities should mind their business

Escondido city officials took a big step in the right direction when they hired a real estate broker to either sell off or get better leases on many of the 214 properties owned by city government. We hope they go much further.

In general, governments have no business being in the commercial real estate business. If the Great Recession and financial panic of the 21st Century has taught us anything, it’s that earning investment returns requires taking risks, and nothing dulls the mind to risk like playing with someone else’s money.

Yet some city officials just can’t resist playing Donald Trump with taxpayer dollars. Some do better – or are luckier – than others. San Marcos, for example, holds a substantial portfolio of commercial buildings on city-owned land. At present, it produces an income stream that allows higher spending on infrastructure and public safety than would otherwise be possible without raising taxes.

There are reasons for such successes. Cities have built-in advantages, such as access to cheap financing and the ability to escape taxes faced by private developers.

Still, successful municipal landlords are the exception. Consider Carlsbad, which has enjoyed years of growth and boasts enormous budget reserves. Its foray into resort development gave the world The Crossings at Carlsbad, the nation’s most expensive municipal golf course, which cost $70 million to build and drains $1.8 million a year from city coffers in operating losses.

For a less sensational example, we note Escondido’s recent case of ballpark fever. Hoping and dreaming that then-Padres owner Jeff Moorad might bring a minor league team to town, Escondido officials jumped the gun and purchased buildings near the proposed ballpark site. When the ballpark proposal collapsed, taxpayers were left with the task of renting and maintaining a portfolio of aging industrial buildings.

These are just the examples we know about. Municipal accounting rules don’t require cities to “mark to market,” or regularly update the market values of their properties and income streams, so taxpayers have no transparent way to judge whether portfolios are being managed effectively. And nobody calculates the hidden cost of vacant lots or sub-optimized buildings that, in private hands, could house job-creating businesses.

The alternative is for local governments of all kinds to abandon their grandiose ambitions in real estate development. Officials need to pay attention, of course, so that taxpayers don’t miss opportunities to buy land for parks, fire stations or schools. And when circumstances change, they need the flexibility to sell or trade properties for those more appropriate to the public purpose.

But they should get out and stay out of most commercial enterprises, leaving that to the private-sector pros, who use the risk capital of investors rather than tax dollars.

Editor's note: A previous version of this editorial said, incorrectly, that Escondido evicted a Mexican restaurant after it purchased buildings near a proposed ballpark. In fact, the restaurant owner agreed to move before the purchases. We apologize.